On 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This might affect up to 50,000 companies. The first companies will have to apply the new rules for the first time in the financial year 2024, for reports published in 2025.
Corporate sustainability reporting has become an essential component of corporate responsibility and accountability. It helps organisations to communicate their environmental, social, and governance (ESG) performance to their stakeholders. The European Union (EU) introduced the Corporate Sustainability Reporting Directive (CSRD) in April 2021 to update and expand the current Non-Financial Reporting Directive (NFRD) and this took effect on the 5 January 2023. This directive aims to create a more harmonised and effective sustainability reporting framework for all EU companies. This media information info sheet provides an overview of the CSRD, its objectives, scope, key changes and the impact it will have on companies.
Objectives of CSRD: The main objectives of the CSRD are to enhance the transparency and comparability of sustainability reporting, improve the quality and reliability of ESG information, and ensure that sustainability reporting is aligned with the EU’s sustainability goals. The directive also aims to create a more consistent and standardised approach to sustainability reporting, thereby enabling investors and other stakeholders to make more informed decisions based on comparable and reliable ESG information.
Scope of CSRD: The CSRD applies to all large EU companies with more than 500 employees. It also applies to all companies listed on EU-regulated markets, regardless of their size. The directive covers a wide range of ESG topics, including climate change, biodiversity, water management, social and human rights issues, and anti-corruption and bribery.
Key Changes under CSRD: The CSRD introduces several key changes compared to the NFRD. Some of the main changes are an expanded scope. The CSRD expands the scope of reporting to cover all material sustainability topics, including those that are not currently covered by the NFRD. This includes climate change, biodiversity, water management, and human rights issues
Reporting requirements: The directive requires companies to provide more detailed and standardised sustainability reporting, including mandatory disclosures on the company’s business model, policies, due diligence processes, and risks and opportunities related to sustainability issues. The CSRD also introduces mandatory reporting on companies’ supply chains and their efforts to prevent and address adverse human rights impacts. Digital reporting: The CSRD requires companies to report sustainability information in a digital, machine-readable format, enabling better analysis and comparability of data
Assurance: The directive introduces a mandatory assurance requirement for companies’ sustainability reporting. Companies will need to have their sustainability information assured by an independent third party. EnviroSense verifiers are well-versed in corporate sustainability reporting assuranc
EU sustainability reporting standards: The CSRD mandates the European Financial Reporting Advisory Group (EFRAG) to develop EU sustainability reporting standards the first set should be completed by mid-2023 based on the draft standards published by EFRAG in November 2022. These standards will provide companies with a common framework for sustainability reporting, ensuring consistency and comparability of ESG information across the EU
Impact of CSRD on companies: The CSRD will have a significant impact on EU companies, requiring them to invest in improving their sustainability reporting processes and systems. Companies will need to collect and report more ESG data and provide more detailed disclosures on their sustainability practices, policies, risks and opportunities. The mandatory assurance requirement will also increase the cost of sustainability reporting for companies. However, the CSRD also provides an opportunity for companies to demonstrate their commitment to sustainability and transparency, and to differentiate themselves from their peers. By providing more detailed and reliable ESG information, companies can enhance their reputation and attract responsible investors and customers. The mandatory reporting on supply chain due diligence and human rights impacts will also help companies to identify and address any ESG risks in their value chain
Conclusion: The Corporate Sustainability Reporting Directive (CSRD) is a significant development in the area of sustainability reporting. It aims to enhance the transparency and comparability of ESG information and align sustainability reporting with the EU’s sustainability goals. The CSRD introduces several key changes.
How we can help: we are working with organisations that ascribe to this framework they are not under a legal obligation at present to do so. The first stage is to conduct a Gap Analysis to identify whether the company’s ESG metrics are appropriate for the industry. ESG metrics and reporting frameworks can be daunting and conducting a Gap Analysis at an early stage determines if the company is heading in the right direction.
For more information, please contact Adam Grant to discuss: adam@envirosenselimited.co.uk